Daily-Deal Sites Face Problems Ahead, Report Says

The buzz of the daily-deal industry–soaring after Friday’s IPO of trailblazer Groupon–may not last long, according to one research firm that polled online shoppers.

Forrester Research e-commerce analyst Sucharita Mulpuru says in report due out Monday that the deal sites “face challenges that threaten to slow down, if not end their businesses.”

Brendan McDermid/Reuters

Employees and guests of Groupon ring the opening bell in celebration of the company’s IPO at the Nasdaq Market in New York, Nov. 4, 2011.

Mulpuru reached this conclusion based on her firm’s survey, which found that many people who buy the heavily discounted offers from sites such as Groupon, LivingSocial and Gilt say they would’ve purchased those goods or services at full price anyway–but took the discount instead because it was available.

Why is that bad for the daily-deal business? These sites depend on merchants, mostly small businesses, to partner with them to provide deals. If the merchants realize that they’re just cannibalizing full-price shoppers with the daily deals, they won’t use the sites anymore and poof goes the daily-deal industry.

Some 51% of customers who buy offers from daily-deal sites, such as Groupon, or from flash-deal sites, such as Gilt, say they would’ve purchased anyway without the offer.

Among the other findings:

–56% of subscribers to deal sites say they check the sites to see what offers are available before purchasing from traditional retailers or service providers. The deal sites turn people into “deal-hunting gremlins” who buy goods and services only when there’s a special, Mulpuru says. That gives merchants another reason to avoid partnering with these sites.

–A significant percentage of online shoppers say they don’t want any more e-mail from these sites, a big impediment for growth.

That’s not to say the daily-deal industry is doomed, despite how unprofitable Groupon has been, Mulpuru says. She said the Groupons and Gilts of the Web “will have to morph significantly to achieve profitability.” She suggests the deal sites could charge merchants for being included in their e-mails, which may blasted out to millions of customers.

Another idea: the deal sites could partner with small- and medium-sized merchants to run loyalty programs for them.